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Glossary of Mortgage Terms

1003: Uniform Residential Loan Application

ACCELERATON CLAUSE: A clause in a deed of trust or note that accelerates or hastens the time when the debt becomes due. For example, most deeds of trust of loans contain a provision that the note shall become due immediately upon the sale of transfer of title of the loan or upon failure to pay an installment of principal or interest. This is also called a “Due on Sale” clause.

ADJUSTABLE RATE MORTGAGE (ARM): A mortgage with an interest rate that is raised or lowered at periodic intervals according to the prevailing interest rates in the market. (Also called Variable-Rate Mortgage.)

AGENCY: Any relationship in which one party (agent) acts for or represents another (principal) under the authority of the principal. Agency involving real property should be in writing, such as listing, trust, powers of attorney, etc.

AMORTIZATION: Payment of debt in regular, periodic installments of principal and interest, as opposed to interest-only payments.

ANNUAL PERCENTAGE RATE (APR): The yearly cost of a mortgage, including interest, mortgage insurance, points, and escrow fees expressed as a percentage

APPRAISAL: An opinion of value based on factual analysis. Legally, an estimation of value by two discriminated persons of suitable qualifications.

ASSESSMENT: A levy against property in addition to general taxes. Usually for improvements such as streets, sewers, etc.

ASSUMPTION OF MORTGAGE: Agreement by a buyer to assume the liability under an existing note secured by a mortgage or deed of trust. The lender usually must approve the new debtor in order to release the existing debtor (usually the seller) from liability.

BALLOON NOTE: A note calling for periodic payments that are insufficient to fully amortize the face amount of the note prior to maturity, so that a principal sum known as a balloon is due at maturity.

BENEFICIARY: One for whose benefit a trust is created; In states in which deeds of trust are commonly used instead of mortgages, the lender (mortgagee) is called the beneficiary.

BORROWER: One who borrows funds with the express or implied intention of repaying the loan in full, or giving the equivalent.

BREACH OF CONTRACT: Failure to perform a contract in whole or in part without legal excuse.

BROKER, REAL ESTATE: One who is licensed by the state to carry on the business of dealing in real estate. A broker may receive a commission for his or her part in bringing together a buyer and seller, landlord and tenant, or parties to an exchange.

BUYDOWN: A fixed-rate loan in which the interest rate and payment are reduced for a specific period of time by paying the interest up front to subsidize the lower payment.

CHAIN OF TITLE: The chronological order of conveyances of a parcel of land, from the original owner to the present owner.

CLEAR TITLE: Real property against which there are no liens, especially involuntary liens (mortgages).

CLOSING: In real estate sales, the final procedure in which documents are executed and/or recorded, and the sale (or loan) is completed.

CLOSING STATEMENT: The statement that lists the financial settlement between buyer and seller and the costs each must pay.

CLOUD ON TITLE: An invalid encumbrance on real property, which, if valid, would affect the rights of the owner.

COMBINED LOAN-TO-VALUE (CLTV) The overall mortgage debt, expressed as a percentage of the home's fair market value. This is calculated by dividing the combined loan amount by the purchase price or the appraised value. Example: Someone with a $50,000 first mortgage and a $20,000 home equity loan secured against a $100,000 house would have a CLTV ratio of 70%. Also known as TLTV; Total Loan-to-Value ratio.

COMMUNITY HOME BUYERS PROGRAM: A fixed rate loan with a low 3 to 5 percent down payment, no cash reserve requirement, and easier qualifying ratios. Subject to borrower meeting income limits and attendance of a four-hour training course on homeownership.

COMMUNITY PROPERTY: Property acquired by husband and wife, or either during marriage, other than by gift, bequest, descent or as the separate property of either is presumed community property.

CONSIDERATION: Anything which is, legally, of value and induces one to enter into a contract.

CONSTANT MATURITY TREASURY (CMT) This index is an average yield on United States Treasury securities adjusted to a constant maturity of 1 year, as made available by the Federal Reserve Board.

CONVENTIONAL MORTGAGE: A mortgage or deed of trust not obtained under a government-insured program such as FHA or VA.

CONVEYANCE: Transfer of title to land. Includes most instruments by which an interest in real estate is created, mortgaged, or assigned.

COVENANTS, CONDITIONS AND RESTRICTIONS(CC&Rs): A term used in some areas to describe the restrictive limitations that may be placed on property.

CREDIT APPROVAL: The borrower's information has been verified and the loan has been approved by the underwriting department subject to an appraisal, and other conditions as they apply.

DEBT-TO-INCOME RATIO (DTI) or Back-end Ratio: The total of all monthly financial obligations, divided by the total gross monthly income.

DEED: Generally, an instrument given to pass fee title or easement to property that has to be recorded with the county recorder.

DEED OF TRUST: An instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor) in favor of the lender (beneficiary) and re-conveyed upon payment in full.

DEPOSIT: Money given by the buyer with an offer to purchase. Shows good faith. Also called “Earnest Money”

DISCOUNT POINTS: A negotiable fee paid to the lender to secure financing for the buyer. Discount points are up-front charges to reduce the interest rate on the loan over the life or a portion of the loan’s term. One discount point equals one percent of the loan amount.

DISPOSABLE INCOME: Monthly income left over after fixed obligations and living expenses are paid for that period.

DOCUMENTARY TRANSFER TAX: A state tax on the sale of real property based on the sale price.

DOWN PAYMENT: Cash portion of the purchase price paid by a buyer from his/her own funds.

ENCUMBRANCE: A claim, lien, charge, or liability attached to and binding real property. Any right to or interest in land that may exist in one other than the owner but that will not prevent the transfer of fee title.

EQUITY: The market value of real property, less the amount of existing liens.

ESCROW: A trust-like account established by a lender to accumulate funds for payment of property taxes, hazard insurance and mortgage insurance. The funds are collected monthly with the mortgage payment and the taxes/insurance are paid, when due, by the lender.

EXECUTE: To put into effect, carry out. To make valid, as by signing a deed.

FAIR CREDIT REPORTING ACT: A federal law giving one the right to see his/her credit report so that errors may be corrected. A lender refusing credit based on a credit report must inform the buyer which company issued the report. The buyer may see the report without charge if refused credit.

FEDERAL HOME LOAN BANKS: A system of eleven regional banks established by the Home Loan Bank Act of 1932 to keep a permanent supply of money available for home financing.

FEE SIMPLE: An estate under which the owner is entitled to unrestricted powers to dispose of the property and which can be left by will or inherited. Commonly, a synonym for “Ownership”.

FHA (Federal Housing Administration): A federal agency that insures first mortgages, enabling lenders to loan a very high percentage of the sale price.

FREDDIE MAC (HLMC) or Federal Home Loan Mortgage Corporation. A federal agency purchasing first mortgages, both conventional and federally insured, from members of the Federal Reserve System and the Federal Home Loan Bank System.

FIRST MORTGAGE: A mortgage having priority over all other voluntary liens against the property it is on.

FIXED-RATE MORTGAGE: A mortgage having a rate of interest that remains the same for the life of the mortgage.

FANNIE MAE (FNMA) OR FEDERAL NATIONAL MORTGAGE ASSOCIATION: A private corporation dealing in the purchase of first mortgages at discounts.

FUNDING: The documents and “prior to funding” conditions are checked and the loan is funded.

GINNIE MAE (GNMA) or Government National Mortgage Association: A federal association, working with FHA, that offers special assistance in obtaining mortgages and purchases mortgages in a secondary capacity.

GOOD FAITH: Having good intentions, such as a buyer putting a deposit on a house or when a lender discloses all information/costs to the loan.

GRANT DEED: One of the many types of deeds used to transfer real property.

HOLDING TITLE: Title to real property in California may be held by individuals, either in Sole Ownership or in Co-Ownership. Co-Ownership of real property occurs when title is held by two or more persons. There are several variations as to how title may be held in each type of ownership.

HOMEOWNER’S ASSOCIATION: An association of people who own homes in a given area, formed for the governing a subdivision or planned community. It collects fees from owners to maintain common areas and enforce covenants, conditions and restrictions set by the developer and the association itself. An association formed by the builder of condominiums of planned developments and required by statute in some states. The builder’s participation as well as the duties of the association are controlled by statute.

HOMEOWNER’S INSURANCE: Includes the coverage of hazard insurance plus added coverage such as personal liability, theft outside of the home (items stolen from the insured’s car), and other such coverage.

HOUSING STARTS: Number of houses on which construction has begun. The figures are used to determine the availability, housing, need for real estate loans, need for labor and materials, etc.

IMPOUND ACCOUNT: Account held by lender for payment of taxes, insurance, or otherperiodic debts against real property. The borrower pays a portion of, for example, the yearly taxes, with each monthly payment. The lender pays the tax bill from the accumulated funds.

IN PROCESS: A complete loan application has been taken and the processing department has ordered a credit report, appraisal, verifications of mortgage, rent, employment, deposit, and all other required documentation.

INDEX: A number used to adjust the interest rate of an adjust- able-rate mortgage loan. Forexample: the change in US Treasury securities (T-bills) with a one-year maturity. The weekly average yield on securities, adjusted to a constant maturity of one year, which is the result of weekly sales, may be obtained weekly. This change in interest rates is the index for the change in the specific adjustable-rate mortgage.

INSTRUMENT: A legal document, such as a deed, mortgage, will, lease, etc.

INTEREST RATE: The percentage of an amount of money that is paid in order to borrow money for a specified amount of time.

INTEREST RATE CAP: The maximum interest rate increase of an adjustable-rate loan. For example: A 6 percent loan with a 5 percent interest rate cap would have a maximum interest or the life of the loan which would not exceed 11 percent.

JOINT TENANCY: An undivided interest in property, taken by two or more joint tenants. The interests must be equal, occurring under the same conveyance and beginning at the same time. Upon the death of a joint tenant, the interest passes to the surviving joint tenants, rather than to the heirs of the deceased.

LATE CHARGE: A charge to the borrower for failure to pay an installment payment on time.

LEASE: An agreement by which an owner of real property gives the right of possession to another for a specified period of time and for a specified consideration (rent). Title does not pass.

LEGAL DESCRIPTION: A method of geographically identifying a parcel of land that is acceptable in a court of law. A description of a parcel of land sufficient to identify the property, such as a lot and tract number.

LIEN: A form of encumbrance which usually makes specific property security for the payment of a debt or discharge of an obligation, e.g., mortgages, judgments, taxes, deed of trust, etc. One who holds a lien has the right to sell the property to obtain the money, or to recover the money when the property is sold. Valid liens are filed with county recorder's offices.

LIS PENDENS: A legal notice recorded to show pending litigation relating to real property and giving notice that anyone acquiring an interest in the property subsequent to the date of the notice may be bound by the outcome of the litigation.

LOAN APPROVAL: The full package, including appraisal has been reviewed and the loan has been approved subject to certain specific conditions. These conditions are usually routine. Some of these conditions may be “prior to documents” or “prior to funding”.

LOAN ORIGINATION FEE: A onetime set-up fee charged by a lender.

LOAN PACKAGE: Also called “loan documents” or “loan docs”. The file of all items necessary for the lender to decide whether to give a loan. These items would include the information on the prospective borrower (loan application, credit report, financial statement, employment letters, etc.) and information on the property (appraisal, survey, etc.).

LOAN-TO-VALUE RATIO (LTV): The percentage of the home's price that is paid for by a mortgage. This ratio is calculated by dividing the loan amount by the purchase price or the appraised value. Example: On a $100,000 house, if the buyer makes a $20,000 down payment and borrows $80,000, the mortgage is 80% of the price of the house. Therefore, the loan-to-value ratio is 80%. When refinancing a mortgage, the loan-to-value ratio is computed using the appraised value of the home, not the sale price.

MARKETABILITY: Also know as “Salability”. The probability of selling property at a specific time, price, and terms.

MARKETABLE TITLE: Title that can be readily marketed (sold) to a reasonably prudent purchaser aware of the facts and their legal meaning concerning liens and encumbrances.

MARKET PRICE: The price a property brings in a given market. Commonly used interchangeably with market value, although not truly the same.

MATERIAL FACT: A fact upon which an agreement is based and without which said agreement would not be made.

MATURITY: Termination period of a note. For example, a thirty-year mortgage has a maturity of thirty years.

MECHANIC’S LIEN: A lien created by statute for the purpose of securing priority of payment for the price or value of work performed and materials furnished in construction or repair of improvements to land, and which attaches to the land as well as the improvements.

MOISTURE BARRIER: Insulating materials used to prevent the buildup of moisture (condensation) in walls and other parts of a building.

MORTGAGEE: The party lending the money and receiving the mortgage. Some states treat the mortgagee as the legal owner, entitled to rents from the property. Other states treat the mortgagee as a secured creditor, the mortgagor being the owner. The latter is the more modern and accepted view.

MORTGAGE CREDIT CERTIFICATE PROGRAM (MCC): A first- time homebuyer program subject to purchase price and income limits and limited to certain counties. The MCC program is actually a special tax credit and assists buyers in qualifying on almost any loan program.

MORTGAGOR: The party who loans the money and gives the mortgage.

MULTIPLE LISTING: An exclusive listing, submitted to all members of an association, so that each may have an opportunity to sell the property.

NOTE: A unilateral agreement containing an express and absolute promise of the signer to pay to a named person, or order, or bearer, a definite sum of money at a specified date or on demand. It usually provides for interest and is generally secured by mortgage or trust deed.

NOTICE OF ACTION: A recorded notice that real property may be subject to a lien, or even that the title is defective, due to pending litigation. Notice of a pending suit, also called lis pendens.

NOTICE OF CESSATION: A notice stating that work has stopped on a construction project. Done to accelerate the period of filing a mechanic’s lien.

NOTICE OF COMPLETION: A notice, recorded to show that a construction job is finished. The length of time in which mechanic’s liens may be filed depends upon when and if a notice of completion is recorded.

NOTICE OF DEFAULT: A notice filed to show that the borrower under a mortgage or deed of trust is in default (behind on the payments).

OFFER: A presentation or proposal for acceptance in order to form a contract. To be legally binding, an offer must be definite as to price and terms.

ORIGINATION FEE: A fee made by a lender for making a real estate loan. Usually a percentage of the amount loaned, such as 1 percent.

OWNER OCCUPIED: Property physically occupied by the owner.

OWNERSHIP: Rights to the use, enjoyment, and alienation of property, to the exclusion of others. Concerning real property, absolute rights are rare, being restricted by zoning laws, restrictions, liens, etc.

PAYMENT CAP: A maximum amount for a payment under an adjustable mortgage loan, regardless of the increase in the interest rate. If the payment is less than the interest alone, negative amortization is created.

PAYOFF: The payment in full of an existing loan or other lien.

PAYMENT SHOCK: A term used to describe the difference between a borrowers current housing expense and the proposed housing expense, when the proposed expense constitutes an increase in monthly debt obligation for housing.

PERSONAL PROPERTY: Any property that is not designated by law as real property.

PIGGYBACK LOAN: A loan made jointly by two or more lenders on the same property under one mortgage or trust deed. One 90 percent loan, for example, may have one lender loaning 80 percent and another (subordinate) lender loaning the top 10 percent (high-risk portion).

PITI (PRINICPAL, INTEREST, TAXES and INSURANCE): Used to indicate what is included in a monthly payment on real property. Principal, interest, taxes (property), and insurance (hazard) are the four major portions of a usual monthly payment.

PLANNED UNIT DEVELOPMENT (PUD:) A real estate project in which individuals hold title to a residential lot and home while the common facilities are owned and maintained by a homeowners' association.

POWER OF ATTORNEY: An authority by which one person (principal) enables another (attorney-in-fact) to act for him. General power authorizes sale, mortgaging, etc., of all property of the principal. Invalid in some jurisdictions. Special power specifies property, buyers, price, and terms. How specific it must be, varies for each state.

PRELIMINARY TITLE REPORT: A report showing the condition of title before a sale or loan transaction. After completion of the transaction, a title insurance policy is issued.

PREPAID INTEREST: (1) The amount of interest paid at the time of closing to cover the period from the day the loan is funded through the end of that month. (2) Interest that a borrower pays before it is due, usually to save taxes.

PREPAID ITEMS: Those expenses of property that are paid in advance and will usually be prorated upon sale, such as taxes, insurance, rent, etc.

PREQUALIFIED: The loan consultant has verbally checked with the borrower on items such as: income, credit, and cash available to close. Based off the information that the borrower has provided, the loan consultant calculates the borrowers’ income to debt ratios. Ratios are the percentage of income in relation to the mortgage payment, (front-end ratio) and the total debt (rear-end ratio).

PREPAYMENT PENALTY: A penalty under a note, mortgage, or deed of trust imposed when the loan is paid before it is due.

PRIME: The interest rate banks charge to large corporations for short-term loans.

PRINCIPAL: (1) The person who gives authority to an agent or attorney. (2) Amount of debt, not including interest. The face value of a note, mortgage, etc.

PRINCIPAL AND INTEREST (P&I): The portion of a borrower's monthly mortgage payment that represents repayment of the amount borrowed plus interest charges.

PRIVATE MORTGAGE INSURANCE: Insurance against a loss by a lender in the event of default by a borrower. The insurance is similar to insurance by a government agency such as FHA, except that it is issued by a private insurance company. The premium is paid by the borrower and is included in the mortgage payment.

PROMISEE: One to whom a promise has been made, such as the lender under a promissory note.

PROMISOR: One who makes a promise. The borrower under a promissory note.

PROMISSORY NOTE: A promise in writing and executed by the maker to pay a specified amount during a limited time or on demand, or at sight, to a named person, or on order, or to bearer.

PRORATION: To divide (prorate) property taxes, insurance premiums, rental income, etc., between buyer and seller proportionately to time of use or the date of closing.

PUBLIC RECORDS: Usually at a county level, the records of all documents that are necessary to give notice. The records are available to the public. All transactions for real estate should be recorded.

PURCHASE AGREEMENT: An agreement between a buyer and seller of real property, setting the price and terms of the sale.

QUITCLAIM DEED: A deed operating as a release: intended to pass any title, interest, or claim that the grantor may have in the property, but not containing any warranty of a valid interest or title in the grantor.

REAL ESTATE: (1) Land and anything permanently affixed to the land, such as buildings, fences, and those things attached to the buildings, such as light fixtures, plumbing and heating fixtures, or other such items that would be personal property if not attached. The term is generally synonymous with real property, although in some states a fine distinction may be made. (2) May refer to rights in real property as well as the property itself.

RECONVEYENCE: An instrument used to transfer title from a trustee to the equitable owner of real estate, when title is held as collateral security for a debt. Most commonly used upon payment in full of a trust deed. Also called a “Deed of Reconveyance” or “Release”.

RECORDING: Filing documents affecting real property as a matter of public record, giving notice to future purchasers, creditors or their interested parties. Recording is controlled by statute and usually requires the witnessing and notarizing of an instrument to be recorded.

RECORDING FEE: The amount paid to the recorder’s office in order to make a document a matter of public record.

RESPA (REAL ESTATE SETTLEMENT PROCEDURES ACT): A federal statute effective June 20, 1975, requiring disclosure of certain costs in the sale of residential (one- to four- family) improved property that is to be financed by a federally insured lender.

RIGHT OF SURVIVORSHIP: The right of a survivor of deceased person to the property of said deceased. A distinguishing characteristic of a joint tenancy relationship.

SALES CONTRACT: Another name for a sales agreement, purchase agreement, etc.

SECOND MORTGAGE: A mortgage that ranks after a first mortgage in priority. Properties may have two, three or more mortgages, deeds of trust, or land contracts as liens at the same time. Legal priority would determine whether they are called a first, second, third, etc. lien.

SEPTIC SYSTEM: A sewage system whereby waste is drained through pipes and a tile field (a system of clay tiles and gravel) into a septic tank. Found in areas where city or county sewers have not yet been installed.

SOLE OWNERSHIP: A man or woman who is not married; an unmarried man or woman who having been married, is legally divorced; a married man or woman as his/her sole and separate property. Note: when a married man or woman wishes to acquire title as their sole and separate property, the spouse must consent and relinquish all right, title and interest in the property by deed or other written agreement.

SPECIAL ASSIGNMENT: Lien assessed against real property by a public authority to pay costs of public improvements (sidewalks, sewers, streetlights, etc.) that directly benefit the assessed property.

SPECIFIC PERFORMANCE: An action to compel the performance of a contract when money damages for breach would not be satisfactory.

STATEMENT OF IDENTITY (Also called “Statement of Information”): A confidential form filled out by buyer and seller to help a title company determine if any liens are recorded against either. Very helpful when people with common names are involved.

STATUTE: A law that comes from a legislative body. A written law, rather than law established by court cases.

SUBORDINATE: To make subject or junior to.

SUCCESSION: The passing of real property by will or inheritance, rather than by grant or deed or any other form of purchase.

Tenancy in Common: The co-owners own undivided interests. Unlike joint tenancy, these interests need not be equal in quantity and may arise at different times. There is no right of survivorship; each tenant owns an interest, which on his or her death vests in his/her heirs or devisee.

TRUST: A legal entity set up to transfer assets/property/income from the Trustor (creator) to the beneficiary. The administration of the transfer is done by a third party (Executor or Trustee). Title to real property in California may be held in trust. The trustee of the trust holds title pursuant to the terms of the trust for the benefit of the trustor/beneficiary.

VERIFICATION OF DEPOSIT (VOD): A form completed by a banking institution to confirm a borrower's account balances and history, including information such as the current account balance, average balance, the date the account was opened.

VERIFICATION OF EMPLOYMENT (VOE): A form completed by a borrower's employer to confirm the borrower's employment history and salary, including information such as the borrower's rate of pay, current year-to-date earnings, position and date of hire.

VERIFICATION OF MORTGAGE (VOM): A form completed by a lender to confirm information regarding a borrower's mortgage, including the borrower's payment history, monthly payment, interest rate, etc.

If you are having difficulty meeting your monthly obligations, contact a credit counseling agency near you. The Department of Housing and Urban Development (HUD) can provide you with the name and address of the local HUD-approved counseling agency by calling their toll-free hotline at 800-569-4287.